Mortgage Minute News

By ALAN ZIBEL
The Associated Press
Saturday, October 2, 2010; 1:51 AM
WASHINGTON -- Bank of America is delaying foreclosures in 23 states as it examines whether it rushed the foreclosure process for thousands of homeowners without reading the documents.

The move adds the nation's largest bank to a growing list of mortgage companies whose employees signed documents in foreclosure cases without verifying the information in them.

Bank of America isn't able to estimate how many homeowners' cases will be affected, Dan Frahm, a spokesman for the Charlotte, N.C.-based bank, said Friday. He said the bank plans to resubmit corrected documents within several weeks.

Two other companies, Ally Financial Inc.'s GMAC Mortgage unit and JPMorgan Chase, have halted tens of thousands of foreclosure cases after similar problems became public.

The document problems could cause thousands of homeowners to contest foreclosures that are in the works or have been completed. If the problems turn up at other lenders, a foreclosure crisis that's already likely to drag on for several more years could persist even longer. Analysts caution that most homeowners facing foreclosure are still likely to lose their homes.

State attorneys general, who enforce foreclosure laws, are stepping up pressure on the industry.

On Friday, Connecticut Attorney General Richard Blumenthal asked a state court to freeze all home foreclosures for 60 days. Doing so "should stop a foreclosure steamroller based on defective documents," he said.

And California Attorney General Jerry Brown called on JPMorgan to suspend foreclosures unless it could show it complied with a state consumer protection law. The law requires lenders to contact borrowers at risk of foreclosure to determine whether they qualify for mortgage assistance.

In Florida, the state attorney general is investigating four law firms, two with ties to GMAC, for allegedly providing fraudulent documents in foreclosure cases. The Ohio attorney general asked judges this week to review GMAC foreclosure cases.

In New York, State Attorney General Andrew Cuomo is reviewing the matter "to prevent homeowners from being improperly removed from their homes," according to a spokesman, Richard Bamberger, who said Friday that Cuomo's office has been in contact with several of the financial institutions.

Mark Paustenbach, a Treasury Department spokesman, said the Treasury has asked federal regulators "to look into these troubling developments." And the Office of the Comptroller of the Currency, which regulates national banks, has asked seven big banks to examine their foreclosure processes.

"We both want to see that they fix the processing problems, but also to look to see whether there is specific harm" to homeowners, John Walsh, the agency's acting director told lawmakers Thursday.

A document obtained Friday by the Associated Press showed a Bank of America official acknowledging in a legal proceeding that she signed up to 8,000 foreclosure documents a month and typically didn't read them.

The official, Renee Hertzler, said in a February deposition that she signed 7,000 to 8,000 foreclosure documents a month.

"I typically don't read them because of the volume that we sign," Hertzler said.

She also acknowledged identifying herself as a representative of a different bank, Bank of New York Mellon, that she didn't work for. Bank of New York Mellon served as a trustee for the investors holding the homeowner's loan.

Hertzler could not be reached for comment.

A lawyer for the homeowner in the case, James O'Connor of Fitchburg, Mass., said such problems are rampant throughout the industry.

"We have had thousands, maybe hundreds of thousands of foreclosures around the country by entities that did not have the right to foreclose," O'Connor said.

The disclosure comes two days after JPMorgan said it would temporarily stop foreclosing on more than 50,000 homes so it could review documents that might contain errors. Last week, GMAC halted certain evictions and sales of foreclosed homes in 23 states to review those cases after finding procedural errors in some foreclosure affidavits.

Consumer advocates say the problems are widespread across the lending industry.

"The general level of sloppiness is pervasive around the industry," said Diane Thompson, counsel at the National Consumer Law Center.

Vickee Adams, a spokeswoman for Wells Fargo & Co., said Wells' "policies, procedures and practices satisfy us that the affidavits we sign are accurate."

Mark Rodgers, a spokesman for Citigroup Inc., said the bank "reviews document handling processes in our foreclosure group on an ongoing basis, and we have strong training to ensure that appropriate employees are fully aware of the proper procedures."

In some states, lenders can foreclose quickly on delinquent mortgage borrowers. By contrast, the 23 states in which Bank of America is delaying foreclosures use a lengthy court process. They require documents to verify information on the mortgage, including who owns it.
Those states are:

FHA Commissioner David Stevens wrote to the industry today. He discussed RESPA Reform and provided and update on the implementation of the SAFE ACT. Below are his comments....

The Office of Housing’s latest efforts have a common thread: the continued need to strengthen protections for consumers in the home buying process. We are working to make the housing market stronger, sustainable, and safer.

Two examples of our efforts to accomplish this goal are the recent reform of HUD’s Real Estate Settlement Procedures Act (RESPA) regulations which make mortgages more transparent and understandable, and the development of Safe Mortgage Licensing Act (SAFE) regulations which better protects consumers.

Transparency is important for consumer protection. Fair dealings require open, clear information. The SAFE Act helps increase the integrity of the mortgage process and prevent fraud. In combination with RESPA reform, consumers have greater protection from possible bad actors in the marketplace. These two measures highlight our commitment to regulatory reform and consumer protection in order to bring trust and stability back to the housing market.

RESPA IMPLEMENTATION
In a previous edition, I briefly discussed some aspects of the Real Estate Settlement Procedures Act (RESPA) Rule. I now want to update you on the great efforts the Department has made providing clarity to the industry during the implementation phase, primarily involving the use of the standardized Good Faith Estimate (GFE) and the revised and expanded Settlement Statement (HUD-1).

The Office of Housing has delivered a live webcast and hosted an Industry Roundtable, and has also met with and trained many lenders and others in an effort to resolve industry implementation inconsistencies. The RESPA staff has participated in more than 150 formal speaking engagements to educate industry professionals and state and federal regulators on the new RESPA rule and plan more in the future. The response has been overwhelming. Since the start of the year, we’ve received and answered more than 7,000 emails. Finally, the Office is currently developing multi-media guidance and education for consumers.

Most recently we have posted additional Frequently Asked Questions (FAQs) on our website aimed to give detailed guidance on topics about which we have had the most inquiries. Two of the hottest topics are pre-approvals and the use of worksheets. For full information and guidance, please refer to the FAQ’s.

Pre-approvals
A pre-approval is a document issued by a lender stating that a consumer qualifies for a specific loan amount prior to the consumer choosing a specific property.

If the loan originator is missing one of the elements it requires for a loan application (e.g., the property address) and is not required to provide a GFE, the originator is not prevented from verifying information for which the customer voluntarily provides documentation.
Also, a loan originator IS PERMITTED to determine that a property address is not one of the required pieces of information that the loan originator needs in order to issue a GFE. It is important to note that a loan originator must consistently apply its policy on the information it deems necessary to issue a GFE, and the RESPA rule requires a loan originator to issue a GFE whenever it receives information sufficient to complete an application for a GFE.

Worksheets
A worksheet is a document issued by a loan originator that may include generic information regarding interest rates and loan fees, or a document that may provide additional information to the consumer regarding the cost of the overall transaction outside of loan fees that are disclosed on the GFE.

A worksheet may be provided to a customer for a rate quote if the consumer does not want to provide the information necessary to generate a GFE. However, loan originators should ensure the following: (1) to eliminate consumer confusion, a worksheet should not look like a GFE and should not lead the customer to believe that it is a GFE and (2) a loan originator should NEVER use a worksheet in lieu of a GFE.
A loan originator may also use a worksheet to provide the consumer with additional information about his or her loan transaction, such as the amount of cash needed to close, seller credits, and other non-loan transaction fees that would be helpful to the consumer.

HOMEOWNER WARRANTIES AND RELATED COMPENSATION
Another recent development in RESPA is that HUD’s Office of General Counsel has issued additional guidance on “Home Warranty Companies’ Payments to Real Estate Brokers and Agents.” This new rule interprets section 8 of RESPA and HUD’s regulations as they apply to the compensation provided by home warranty companies (HWCs) to real estate brokers and agents.

Specifically, the rule provides:

A payment by an HWC for marketing services performed by real estate brokers or agents on behalf of the HWC that are directed to particular homebuyers or sellers is an illegal kickback for a referral under section 8;
Depending upon the facts of a particular case, an HWC may compensate a real estate broker or agent for services when those services are actual, necessary and distinct from the primary services provided by the real estate broker or agent, and when those additional services are not nominal and are not services for which there is a duplicative charge; and

The amount of compensation from the HWC that is permitted under section 8 for such additional services must be reasonably related to the value of those services and not include compensation for referrals of business.”
This rule was published on June 25. You may view this interpretive rule here.

SAFE ACT
Passed by Congress as part of the Housing and Economic Recovery Act of 2008 (HERA), the SAFE Act mandates that all individual Mortgage Loan Originators (MLOs) either be licensed by the state where they do business or, if they are employed by a federally-regulated depository institution, be registered. Both licensing and registration must be done through the Nationwide Mortgage Licensing System and Registry (NMLSR), which also provides MLO’s with unique identifiers. The SAFE Act sets forth minimum standards for state licensing.

HUD is responsible for ensuring that state regulators implement and maintain SAFE Act-compliant licensing systems, as well as ensuring the overall effectiveness of the NMLSR.

HUD’s SAFE Act Office has worked closely with the Conference of State Bank Supervisors (CSBS), the American Association of Residential Mortgage Regulators (AARMR) and the states to ensure that all U.S. jurisdictions enact SAFE Act-compliant licensing systems through legislation or regulations.

Final Rule Status
HUD published a proposed rule in the Federal Register on December 15, 2009, setting forth the minimum requirements that a state would have to meet in order to be compliant with the SAFE Act. As of this date, the proposed rule has not been finalized. In the absence of a final rule, HUD cannot provide definitive guidance regarding certain compliance issues.

HUD received over 5,300 comments from the public during the comment period on the proposed rule. Most of the comments were from organizations and individuals concerned that they would need to license their employees.

Those who commented included: non-profit agencies, housing counseling organizations, loan modification and servicing specialists, housing finance agencies, those involved in owner/seller financing, mortgage industry groups and other interested persons. In developing its final rule, HUD is working to address concerns raised by comments.

In closing, I hope you find these overviews helpful. I am confident that updating the RESPA Rule and implementing the SAFE Act will lead to clear regulations for the housing industry, stronger protections for consumers, and a more stable housing market.

The House just backed a measure to extend the closing deadline to Sept. 30 for buyers who met the April 30 deadline to have a signed contract. The current deadline requires those buyers to close the transaction by June 30 to receive the $8,000 tax credit for first-time homebuyers.

Today, the House of Representatives passed an extension of the $8,000 homebuyer tax credit for first time homebuyers. The extension was set to expire at the end of June. The extension, sponsored by Rep. Frank Kratovil and his colleagues Rep. Travis Childers (D-MS) and Kathy Dahlkemper (D-PA), will extend the credit until October 1, 2010.

“The first time home buyer tax credit is working to revitalize the housing industry, a major indicator of the overall strength of the economy,” said Rep. Frank Kratovil. “However, more than 2,000 Marylanders who have already signed a contract to purchase a new home are having their closings delayed through no fault of their own. This common sense legislation will ensure that these individuals receive the tax credit that they rightfully deserve. Extending this tax credit will not only boost our economic recovery and support our housing market, but it is also the right thing to do.”

The bill extends the credit for all homebuyers with a binding contract as of April 30, 2010 so that they are afforded more time to close the sale and still benefit from the credit.

In late September Reps. Frank Kratovil (D-MD) and Travis Childers (D-MS) introduced a bill, The Tax Credit Extension for Homebuyers with a Loss Deduction Incentive Act (H.R. 3640), to extend the first time home buyer tax credit. A similar home buyer tax credit extension was eventually signed into law on November 6, 2009.

"As the most far-reaching and ambitious plan to end homelessness in our history, this plan will both strengthen existing programs and forge new partnerships," said USICH Chair and HUD Secretary Shaun Donovan. "Working together with Congress, state and local officials, faith-based and community organizations, and business and philanthropic leaders across our country, we will harness public and private resources to build on the innovations that have been demonstrated at the local level nationwide. No one should be without a safe, stable place to call home and today we unveil a plan that will put our nation on the path toward ending all types of homelessness."

By combining permanent housing with support services, federal, state, and local efforts have reduced the number of people who are chronically homeless by one-third in the last five years.

"Communities across the country have stressed the need for federal leadership to prevent and end homelessness," said USICH Executive Director Poppe. "For the first time, the nation will have goals, strategies, and measureable outcomes that will guide us toward a fiscally prudent government response. Local, state, and federal governments cannot afford to invest in anything but the most evidence-based, cost-effective strategies."

In recent years, over 300 communities have developed plans to end homelessness. "We know that the Federal government alone cannot address this challenge," said USICH Vice Chair and Labor Secretary Hilda Solis. "Achieving the goals in Opening Doors will require strong partnerships with Congress, states, localities, philanthropy, and faith based and community organizations across the country. After all, the people of our nation are best served when we work as a team.

Opening Doors serves as a roadmap for joint action by the 19 USICH member agencies along with local and state partners in the public and private sectors. The plan puts us on a path to end veterans and chronic homelessness by 2015; and to ending homelessness among children, family, and youth by 2020. The Plan presents strategies building upon the lesson that mainstream housing, health, education, and human service programs must be fully engaged and coordinated to prevent and end homelessness, including:

Increasing leadership, collaboration, and civic engagement, by a focus on providing and promoting collaborative leadership at all levels of government and across all sectors and strengthening the capacity of public and private organizations by increasing knowledge about collaboration and successful interventions to prevent and end homelessness.

Improve health and stability, by linking health care with homeless assistance programs and housing, advancing stability for youth aging out of systems such as foster care and juvenile justice, and improving discharge planning for people who have frequent contact with hospitals and criminal justice systems.

Retool the homeless response system, by transforming homeless services to crisis response systems that prevent homelessness and rapidly return people who experience homelessness to stable housing.

NEW YORK -- The U.S. Mortgage Bankers Association said on Wednesday it will ask Congress to transform mortgage lenders Fannie Mae, Freddie Mac into several smaller, privately held companies that would issue mortgage securities with a government guarantee. The proposed framework from the industry group would give successor entities to Fannie Mae and Freddie Mac the authority to create securities backed by certain types of mortgage. The new companies would guarantee the securities against defaults on underlying mortgages and pay fees into a federal insurance fund that would make good on interest and principal payments to bondholders if the companies were unable to make them. "The government has an important, limited role to play to ensure a stable flow of funds for mortgages." said Michael Berman, MBA's vice chairman and chairman of the Council on Ensuring Mortgage Liquidity. The MBA plan calls for government agencies, rather than the new companies, to assume the "mission" of promoting affordable housing that Congress has long assigned to Fannie and Freddie. The number of new companies would be initially limited to two or three, the MBA said.

Fannie Mae and Freddie Mac were not immediately available for comment.

Mortgage backed securities had another losing day yesterday moving lower in price by .375 in discount. Many lenders did reprice for the worse as the losses held through close. The stock market is one of the driving forces behind bond market losses at the moment as bond traders are taking some of their cues about the long term economic outlook from current stock performance. Sparking the stock market rally was the much better than expected earnings from Goldman Sachs and Johnson and Johnson. If stocks gain, it puts a damper on the safety-oriented mentality that can spur demand for bonds like treasuries and MBS. Although MBS have lost a fair amount of ground recently, bond and stock traders alike are waiting for additional data before a firm trend is likely to develop. This includes several of the more anticipated earnings announcements as well as the scheduled economic data. Of particular importance, according to many market participants, are earnings from JP Morgan, Bank of America and Citi. Once those chips are down and this reasonably busy week of data is over, there is a higher potential for a trend to develop in MBS for better or worse.

On the surface, the economic data yesterday favored the stock market over the fixed income market, but as the markets had time to digest the less superficial aspects of the reports, mitigating factors helped ease bond losses and keep a stock rally in check. Today we get several important data sets that will set the trend for today.

First out this morning is the weekly Mortgage Bankers’ Association applications index which tracks the weekly change in mortgage applications at major lenders. An increasing trend in purchase activity would be seen as a positive indicator for equities as home purchases lead to many other purchases including furniture, flooring, appliances, etc… Also, one would have to feel very confident in their own financial position and job security to purchase a new home, so economic factors relating to consumer confidence are also in play. The report has shown a large decline in purchase activity from last week moving lower by 9.4% and pointing to continued troubles in the housing market. Many economists and talking heads have stated that housing is a critical component of our potential recovery and although reports on housing and mortgages can vary greatly from week to week, this one is certainly not indicating an imminent recovery. On a positive note the refinance activity improved again last week moving higher by 18%. The increase in refinance activity can be attributed to the recent decline of mortgage rates back to the 5% mark.

In other data, the US Department of Labor released the monthly Consumer Price Index(CPI) which measures the price change of a fixed basket of goods and services at the consumer level. One of the biggest enemies of mortgage rates and indeed of bonds in general, is higher inflation. To explain why this is with broad strokes, if inflation decreases the value of today’s money, and fixed income investments pay a guaranteed return of today’s money, then the greater the inflation, the less and less a fixed income investment would return. Of course it’s going to return the amount of money it promises (one hopes), but if you’re planning on getting $1000 back in a year on a fixed income investment and inflation is so bad that, in a year from now $1000 only buys two cheeseburgers, the VALUE of your investment is obviously not as high as it is today when that same $1000 could buy a new TV and a week’s worth of cheeseburgers. Sounds like mortgage blogger paradise to me…Back to the point, today’s data indicates a slightly higher than expected rate of inflation but most of the increase can be attributed to higher gasoline prices as was the case with yesterday’s PPI report. The headline CPI came in right on expectations at a month over month increase of .7% but year over year CPI posted a -1.4% decline which is the biggest decline since 1950! The core rate, which strips out volatile food and energy prices posted a slightly higher read of 0.2%. The market had anticipated only a 0.1% increase to the core rate. Year over year the core rate has risen by 1.7% which is well within the Fed’s comfort zone for inflation and better than last month’s 1.8% reading. Our economy needs inflation to grow and the Fed would like to see core inflation between 1% and 2%. With the recent decline in oil prices, this trend of higher consumer prices is not likely to continue. Following the release of this report, MBS have continued to move lower which will result in higher consumer borrowing costs.

The New York Fed has released the monthly Empire State Manufacturing survey which gives market participants a read on the strength of the manufacturing sector around the New York area. Readings below 0 indicate a contracting sector while readings above 0 indicate expansion. The release has indicated a much better than expected reading of -0.55 versus expectations of -4.5. This is a sizable improvement over last month’s -9.4 and contributes to the case for recovery which. As you know, most of data that are good for the recovery are bad for bonds, so this certainly did not help this AM’s situation.

The final data set this morning is the release of Industrial Production down -0.4% versus a consensus of -0.7%. This report shows how much factories, mines and utilities are producing and better than expected readings are generally good for stocks and bad for bonds. In May, this data set posted a drop of -1.1%. But remember, this is still a decline and “less bad” doesn’t necessarily equal “good.”

If you are keeping stats, the economic data, except for purchase applications, is all negative for fixed income. The downward pressure on MBS prices is continuing and so far this morning has posted another .25 in discount drop. This trend may be short-lived as we still have the FOMC minutes later today, jobless claims tomorrow and earnings reports to digest. Like yesterday, for MBS to manage any type of rebound they will need the stock market to move lower. That looks to be a difficult challenge this morning as stock market futures are pointing to a significantly higher open. If the stock market does change course, it will allow for money to flow back into treasuries first than into MBS. Currently, the benchmark 10 year note is continuing to move higher in yield and is trading at 3.54. Just last week, it was trading under 3.30! One reason we feel the current market has not set a firm trend is that the trading volume is extremely low. If market participants really feel the economy has turned, the rally in the stock market would see much higher level of trades. This is a key indicator of the market waiting for guidance but unfortunately the rally in the stock market is at the expense of the fixed income sector.

At 2pm eastern, the Federal Reserve will release the minutes from their last Federal Open Market Committee. Most of the information in the minutes will already be known, but market participants will review it thoroughly for any hints of future monetary policy and outlook on the economy. Matt and AQ will post any relevant details after the release on the MBS Commentary blog.

Early reports from fellow mortgage professionals are indicating the mortgage rates continue to move higher. The par 30 year fixed rate conventional mortgage is in the 5.00% to 5.25% range for the best qualified consumers. In order to qualify you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs including 1 point loan origination/discount/broker fee. If you are accessing home equity, you should expect to pay higher costs or take a higher interest rate. For consumers seeking FHA or VA loans, expect the rate to be about .25% higher than conventional loans.

The National Association of Home Builders (NAHB) is pleased with one underwriting guideline adjustment made last week by government sponsored enterprise, Freddie Mac.Freddie Mac's Bulletin 2009-18 announced several changes to the GSE's underwriting guidelines. The changes deal mainly with the documentation required for income and asset verification, make "condominium hotel" loans ineligible for purchase, and eliminated Form 70A, Energy Addendum as a required attachment to appraisals.More notably, Freddie Mac made several "Best Practices" recommendations for selecting appraisers and reviewing their products. One of these contained the statement that Freddie does not require appraisers to use Real Estate Owned, foreclosures or short sales in selecting comparable sales but rather that appraisers must "certify that comparable sales chosen are those most similar to the subject property." These should include distressed sales if they are representative, something many industry professionals have been requesting since the Home Valuation Code of Conduct was enacted on May 1, 2009.In a press release on Monday, NAHB Chairman Joe Robson said that this was "a step in the right direction," but that this modification needed to go further. He called for additional changes that would allow appraisers the option of expanding both the geographic area and the time frame for comps in cases where local and recent contracts are heavily skewed toward distressed sales.He cited a recent survey by NAHB that found that 26 percent of builders have seen signed contracts fall apart because of appraisals that do not reflect the contract sales price. Of these, 54 percent said that the questionable appraisals were actually coming in at less than the cost of building the home.In addition, 60 percent of those responding to the survey knew of problems in their market areas caused by inadequate appraisal values. The biggest problem reported resulted from the use of foreclosures and distressed sales as comparables.The NAHB's position is that such sales should not be used without appropriate adjustments to reflect the cost of improving them to a point where they are a valid comp and a reasonable alternative for the home buyer."Home builders are increasingly concerned that inappropriate appraisal practices are needlessly driving down home values," Robson said. "This, in turn, is slowing new home sales, causing more workers to lose their jobs and putting a drag on the economic recovery. The NAHB further stated that current appraisal practices are causing other problems for builders by depressing the availability of acquisition, development, and construction funds. The low values being assigned to land and subdivisions have caused banks and investors to cut lending to builders, require additional collateral, or even call performing loans. "If the spigot for housing production loans is cut off, there can be no housing recovery, and this has major implications for the economy as a whole," said Robson.